blog
Alignment Through Compensation
By Steven
I recently completed a compensation workshop with a client and was pleased that the final results led to a complete alignment of the firm's distribution organization. Proper alignment across Sales, Marketing, and National Accounts is one of the fundamental keys to distribution success.
The heightened role of research analysts at broker/dealer firms is decreasing the relative impact of wholesaling and marketing efforts. Neither group can begin to impact asset flows without National Accounts' role in getting products on the right shelves. National Accounts, therefore, must be structured to ensure that the company's products are on the right platforms and recommended lists, and that the firm achieves the best internal profitability while maximizing revenue generation potential and the strategic value of each relationship.
Alignment needs to continue throughout the Sales organization so that Divisional Managers, external wholesalers, internals, and hybrid wholesalers are all measured on the same success metrics. This should include both qualitative as well as quantitative measures.
Nirvana would be attained if Marketing would work in concert with National Accounts and Sales. While rare, a few firms in the industry have started to compensate Marketing organizations on certain sales objectives. These objectives are usually tied to the success of specific value-added programs or a combination of sales and firm wide success.
Only once all parts of the Distribution organization are properly aligned will firms be able to get the most of each distribution relationship.
---------------------------------------------------------------------------------------------------Using Research to Make Advisors Feel Special
by Conrad
On the institutional side of the business, many firms spend a lot of time and effort on producing research. By not leveraging this information for advisors, however, firms do not get the most value out of these materials. Thinking that the research is too advanced for advisors is a flawed mindset based on recent interviews with advisors conducted for our The Secret Life of Advisors whitepaper. The interviews affirmed that some advisors do really want in-depth, advanced information to help them make informed decisions (why all advisors don't use all available resources is another question for another day). More than 25% of the advisors that I spoke with indicated an interest in institutional-level research. Instead of restricting access to this research, firms (and particularly their wholesalers) can make the information available on a one-off basis to those advisors that would get value from it, making them feel special and getting more bang for the firm's research buck.
---------------------------------------------------------------------------------------------------A Place Where All Wholesalers Are Above Average
by Mike McLaughlin
NetFlix and sports bars with NFL Sunday Ticket. Without cable, that's what my wife and I rely on when we want to watch TV. Actually, she doesn't care about the Sunday Ticket part.
Anyway, having watched hundreds of movies over the last few years, there are times when our NetFlix queue gets a little barren. Now is one of those times, which is how A Prairie Home Companion ended up in the top slot and on its way to our mailbox.
I knew nothing about Garrison Keillor and his radio show that inspired the movie, so I spent a minute on the show's Web site. Critical research, for sure. A central element of the show is the fictional Minnesota town of Lake Wobegon, a place where "the women are strong, the men are good-looking, and all the children are above average."
It is the last part that is intriguing to me. After all, most of us are aware of how human beings tend to overrate themselves, whether we're talking about looks, intelligence, or social skills. What I didn't realize is that this natural human tendency to overestimate ourselves has a name: the Lake Wobegon effect.
As the link illustrates, this effect has been formally identified among all kinds of groups, including CEOs, drivers, and college students. Interestingly enough, our latest research effort is showing that it may exist within the Sales teams of asset management firms as well.
We have been conducting numerous interviews recently with Sales leaders about the way they evaluate their wholesaling talent. These interviews raise interesting questions, as we have seen that:
- The mechanisms used to evaluate wholesalers are remarkably consistent across the industry
- Sales managers almost universally believe their wholesalers are among the industry's best
- Sales managers also feel that they have a good handle on just how good their wholesalers are, both in absolute (inter-firm) and relative (intra-firm) terms
Of course, statistics tell us otherwise. After all, by definition, 50% of wholesalers have to be below average. Resolving this apparent contradiction is something we are talking about with our clients today, and will be part of the conversation at our upcoming Sales Roundtable.
We will have a more comprehensive review of the opportunities we see for firms to update their evaluation schemes upon completion of our research. In the meantime, I need to get ready for the undefeated Chicago Bears' appearance on Monday Night Football. And by the way, take a pass on A Prairie Home Companion. I can pass along about 500 better recommendations if you need a good movie to watch.
---------------------------------------------------------------------------------------------------Net Sales v. Net-like Components
by Mike Ma
I've been fielding a lot of questions about net sales in the last few months as firms are starting to redesign some of their compensation plans in preparation for the new year.
It's my experience that net sales are a goal that everyone should strive for, but one cannot just throw it into a line item in an excel spreadsheet and make it happen. Typically, I see firms who want to do net sales and will
- determine the total commission pool at target
- attribute a portion to gross sales in a territory (say, 80%)
- attribute the balance to net sales in a territory (thus, 20%)
The problem with implementations like this is that it doesn't affect behavior in the field. Weekly loops and call plans won't look any different if this is what we put in front of them.
Instead, we have been working with clients in developing net-like components into comp plans. Targets that are
- Measurable - they have quantitative basis to determine if a wholesaler hit them or not (e.g. # of new producers at a new, strategic distribution partner, or growing assets in more profitable asset classes)
- Substantial - non-commision variable compensation comprises less than 10% of total compensation at most firms, and therefore no matter how sound they are, or measurable, they won't change behavior. We are challenging our clients to double that amount, but pick activities they would really be willing to pay for.
While net sales across your entire wholesaling force may be some time off for most firms, there is nothing stopping firms from putting net-like components into comp plans today in order to build smarter wholesaling for tomorrow.
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